<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from _____ to _____.
Commission file number: 000-28203
CNBC BANCORP
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1478140
----------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 East Wilson Bridge Road, Worthington, Ohio 43085
-----------------------------------------------------
(Address of principal executive offices)
(614) 848-8700
----------------------------
(Issuer's telephone number)
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock, without par value 1,362,058 common shares
outstanding at November 3, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -----
<PAGE> 2
CNBC BANCORP
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION ----
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets ......................... 3
Condensed Consolidated Income Statements....................... 4
Condensed Consolidated Comprehensive Income Statements......... 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity ........................................ 6
Condensed Consolidated Statements of Cash Flows ............... 7
Notes to the Consolidated Financial Statements ................ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 19
Item 2. Changes in Securities and Use of Proceeds.................... 19
Item 3. Defaults Upon Senior Securities.............................. 19
Item 4. Submission of Matters to a Vote of Security Holders.......... 19
Item 5. Other Information............................................ 19
Item 6. Exhibits and Reports on Form 8-K............................. 20
SIGNATURES ......................................................... 21
2.
<PAGE> 3
CNBC BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
---- ----
ASSETS
<S> <C> <C>
Cash and Noninterest-bearing Balances....................... $ 13,455,450 $ 4,728,912
Interest-bearing Balances................................... 6,159,495 261,900
Federal Funds Sold.......................................... - 4,525,000
Money Market Funds.......................................... 5,211,610 2,301,047
--------------- --------------
Total Cash and Cash Equivalents........................ 24,826,555 11,816,859
Securities Available for Sale............................... 8,572,082 11,010,108
Loans, Net.................................................. 205,482,825 175,669,537
Premises and Equipment...................................... 2,496,270 2,377,459
Accrued Interest Receivable................................. 1,195,799 998,479
Other Assets................................................ 1,365,015 1,055,320
--------------- --------------
Total Assets................................................ $ 243,938,546 $ 202,927,762
=============== ==============
LIABILITIES
Deposits:
Noninterest-bearing.................................... $ 29,654,764 $ 22,426,666
Interest-bearing....................................... 173,797,235 146,641,616
--------------- --------------
Total Deposits..................................... 203,451,999 169,068,282
Borrowings.................................................. 18,417,798 13,572,988
Other Liabilities........................................... 1,114,515 1,181,813
--------------- --------------
Total Liabilities........................................... 222,984,312 183,823,083
SHAREHOLDERS' EQUITY
Common Stock No Par Value;
Authorized Shares - 2,000,000
Issued - 1,342,427 in 2000 and
1,324,532 in 1999...................................... 13,850,136 13,672,131
Retained Earnings........................................... 7,096,343 5,453,333
Accumulated Other Comprehensive Income (Loss)............... 7,755 (20,785)
--------------- --------------
Total Shareholders' Equity.................................. 20,954,234 19,104,679
--------------- --------------
Total Liabilities and Shareholders' Equity.................. $ 243,938,546 $ 202,927,762
============= ================
</TABLE>
See Notes to Consolidated Financial Statements
3.
<PAGE> 4
CNBC BANCORP
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans, including Fees................. $ 4,544,695 $ 3,562,059 $ 12,610,189 $ 10,229,386
Taxable Securities.................... 145,738 123,318 418,338 278,078
Money Market Funds.................... 151,643 101,966 401,515 257,522
Federal Funds Sold.................... 28,401 83,336 94,613 172,450
Deposits with Banks................... 50,342 17,911 86,575 134,212
---------------- ---------------- ------------- ---------------
Total Interest Income....................... 4,920,819 3,888,590 13,611,230 11,071,648
INTEREST EXPENSE
Deposits.............................. 2,261,472 1,574,856 6,052,944 4,507,949
Borrowings............................ 258,226 211,797 662,297 623,689
---------------- ---------------- --------------- ---------------
Total Interest Expense...................... 2,519,698 1,786,653 6,715,241 5,131,638
---------------- ---------------- --------------- ---------------
Net Interest Income................... 2,401,121 2,101,937 6,895,989 5,940,010
Provision for Loan Losses............. 105,800 119,000 307,400 392,000
---------------- ---------------- --------------- ---------------
Net Interest Income After
Provision for Loan Losses............. 2,295,321 1,982,937 6,588,589 5,548,010
NONINTEREST INCOME
Service Charges on Deposits........... 33,384 44,490 115,295 132,141
Net Gains on Sales of Securities...... - - - 15,395
Other Income.......................... 130,471 41,125 260,860 104,886
---------------- ---------------- --------------- ---------------
Total Noninterest Income.................... 163,855 85,615 376,155 252,422
---------------- ---------------- --------------- ---------------
NONINTEREST EXPENSES
Salaries and Benefits................. 807,811 676,208 2,345,684 1,900,177
Occupancy and Equipment, Net.......... 87,858 73,330 257,337 183,273
Data Processing....................... 39,887 100,228 119,211 252,598
Customer Courier...................... - - - 96,000
Professional Services................. 53,647 28,372 131,649 108,918
State Franchise Tax................... 42,425 16,214 127,344 88,247
Other Expenses........................ 226,891 191,421 623,794 547,322
---------------- ---------------- --------------- ---------------
Total Noninterest Expenses.................. 1,258,519 1,085,773 3,605,019 3,176,535
---------------- ---------------- --------------- ---------------
Income Before Income Taxes.................. 1,200,657 982,779 3,359,725 2,623,897
Income Tax Expense.......................... 401,800 343,351 1,149,900 916,821
---------------- ---------------- --------------- ---------------
Net Income............................ $ 798,857 $ 639,428 $ 2,209,825 $ 1,707,076
================ ================ =============== ===============
EARNINGS PER COMMON SHARE
Basic................................. $ .60 $ .49 $ 1.66 $ 1.39
================ ================ =============== ===============
Diluted............................... $ .56 $ .45 $ 1.56 $ 1.27
================ ================ =============== ===============
DIVIDENDS DECLARED PER
COMMON SHARE.......................... $ - $ - $ .24 $ .20
---------------- ---------------- --------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements
4.
<PAGE> 5
CNBC BANCORP
CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income ................................ $ 798,857 $ 639,428 $ 2,209,825 $ 1,707,076
Other Comprehensive Income (Loss):
Unrealized Holding Gains and (Losses) on
Securities Available for Sale ....... 49,750 (4,570) 43,212 (30,088)
Reclassification Adjustment for (Gains) and
Losses Recognized in Net Income ..... -- -- -- (15,395)
----------- ----------- ----------- -----------
Net Unrealized Gains and (Losses) ......... 49,750 (4,570) 43,212 (45,483)
Tax Expense (Benefit) ..................... 16,915 (1,554) 14,672 (15,400)
----------- ----------- ----------- -----------
Total Other Comprehensive
Income (Loss) ....................... 32,835 (3,016) 28,540 (30,083)
----------- ----------- ----------- -----------
Comprehensive Income ...................... $ 831,692 $ 636,412 $ 2,238,365 $ 1,676,993
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
5.
<PAGE> 6
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
BALANCES AT BEGINNING OF PERIOD ............ $ 20,136,201 $ 17,768,579 $ 19,104,679 $ 11,971,502
Net Income ................................. 798,857 639,428 2,209,825 1,707,076
Proceeds from Exercise of Warrants ......... 46,271 1,187 112,186 33,881
Proceeds and Tax Benefit from Exercise of
Stock Options ........................ 4,070 98,865 121,164 228,165
Proceeds from Stock Offering,
Net of Costs ......................... -- -- -- 4,853,694
Stock Issued in Business Purchase .......... -- 32,000 -- 32,000
Shares Issued as Employee Compensation,
at Fair Value ........................ -- -- 1,500 --
Treasury Shares Purchased .................. (64,000) -- (303,000) --
Cash Dividends Declared ($0.24 per share
in 2000 and $0.20 per share in 1999) . -- -- (320,660) (259,192)
Other Comprehensive Income (Loss) .......... 32,835 (3,016) 28,540 (30,083)
------------ ------------ ------------ ------------
BALANCES AT END OF PERIOD .................. $ 20,954,234 $ 18,537,043 $ 20,954,234 $ 18,537,043
------------ ------------ ------------ ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6.
<PAGE> 7
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 2,209,825 $ 1,707,076
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses............... 307,400 392,000
Depreciation............................ 216,189 168,100
Net Realized Gain on Securities
Available for Sale................... - (15,395)
Net Amortization/Accretion on Securities (8,812) 5,136
Federal Home Loan Bank Stock Dividends.. (46,000) (64,100)
Changes in:
Interest Receivable............ (197,320) (69,213)
Other Assets................... (324,367) (241,048)
Other Liabilities.............. 197,608 149,098
------------- ------------
Net Cash Provided by Operating Activities........ 2,354,523 2,031,654
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities................................... (3,463,950) (8,553,219)
Maturities of Securities.................................. 6,000,000 1,750,000
Sales of Securities Available for Sale.................... - 3,055,079
Net Increase in Loans..................................... (30,120,688) (17,097,790)
Purchase of Premises and Equipment........................ (335,000) (479,477)
------------- ------------
Net Cash Flows Used in Investing Activities...... (27,919,638) (21,325,407)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits.................................. 34,383,717 18,307,573
Purchase of Treasury Shares............................... (303,000) -
Net Proceeds from Issuance of Common Stock................ 234,850 5,115,740
Maturities of Federal Home Loan Bank Advances............. (750,000) (1,250,000)
Advances from Federal Home Loan Bank...................... 6,100,000 5,000,000
Principal Payments on Federal Home Loan Bank Advances..... (355,623) (619,085)
Net Proceeds from Loan Payable............................ 1,000,000
Repayment of Loans Payable................................ (149,567) (1,060,641)
Dividends Paid............................................ (585,566) (449,078)
------------- ------------
Net Cash Flows Provided by Financing Activities.. 38,574,811 26,044,509
------------- ------------
Net Change in Cash and Cash Equivalents.......... 13,009,696 6,750,756
Cash and Cash Equivalents at Beginning of Year............ 11,816,859 17,496,729
------------- -------------
Cash and Cash Equivalents at End of Period................ $ 24,826,555 $ 24,247,485
============= =============
Cash Paid During the Period for
Interest......................................... $ 6,668,825 $ 5,108,926
Income Taxes..................................... 1,200,000 980,000
Noncash Transactions
Business Purchase................................ $ - $ 32,000
Shares Issued as Employee Compensation........... $ 1,500 $ -
</TABLE>
See Notes to Consolidated Financial Statements
7.
<PAGE> 8
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the consolidated financial position of CNBC Bancorp ("CNBC") at September 30,
2000, and its results of operations and cash flows for the periods presented.
All such adjustments are normal and recurring in nature. The accompanying
consolidated financial statements have been prepared in accordance with the
instructions of Form 10-QSB and, therefore, do not purport to contain all
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances, and should be
read in conjunction with the consolidated financial statements and notes thereto
of CNBC Bancorp for the year ended December 31, 1999, included in its 1999
Annual Report. Reference is made to the accounting policies of CNBC Bancorp
described in the notes to consolidated financial statements contained in its
1999 Annual Report. CNBC has consistently followed these policies in preparing
this Form 10-QSB.
The accompanying consolidated financial statements include the accounts of CNBC
Bancorp and its wholly-owned subsidiaries, Commerce National Bank ("Commerce
National") and CNBC Retirement Services, Inc. ("CRS, Inc."). All significant
intercompany transactions and balances have been eliminated.
Revenues and assets are derived primarily from the banking industry, serving
small business customers in the central Ohio region. Banking deposit products
include checking and savings accounts and certificates of deposit. Business
loans are secured by real estate, accounts receivable, inventory, equipment and
other types of collateral and are expected to be repaid from cash flows from
operations of businesses. Personal loans are secured by real estate, stocks and
other collateral. A small portion of loans are unsecured. All of CNBC's banking
operations are considered by management to be aggregated in one reportable
operating segment.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect amounts reported in the
financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses, fair values of financial instruments and
the status of contingencies are particularly subject to change.
Basic Earnings Per Share ("EPS") is net income divided by the weighted-average
number of common shares outstanding. Diluted EPS is the weighted-average number
of common shares outstanding during the year and the assumed exercise of
dilutive stock options and warrants less the number of treasury shares assumed
to be purchased from the proceeds using the average market price of CNBC's
common stock. The calculation for weighted average shares is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- -----
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS....... 1,335,850 1,300,788 1,334,771 1,225,293
Add dilutive effect of:.....................
Exercise of warrants.................. 17,204 44,217 19,955 46,630
Exercise of stock options............. 64,107 70,586 65,045 74,163
-------------- ----------- ----------- -----------
Weighted averages shares for diluted EPS.... 1,417,161 1,415,591 1,419,771 1,346,086
</TABLE>
8.
<PAGE> 9
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income tax expense is based on the effective tax rate expected to be applicable
for the entire year. Income tax expense is the sum of the current year income
tax due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts or the
temporary differences between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
In June 1998, the Financial Accounting Standards Board (the FASB) issued
Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), subsequently amended by SFAS No. 137 and 138, which the company is
required to adopt effective January 1, 2001. SFAS 133 will require CNBC to
record all derivatives on the balance sheet at fair value. Changes in derivative
fair values will either be recognized in earnings as offsets to the changes in
fair value of related hedged assets, liabilities and firm commitments or, for
forecasted transactions, deferred and recorded as a component of other
stockholders' equity until the hedged transactions occur and are recognized in
earnings. The ineffective portion of a hedging derivative's change in fair value
will be immediately recognized in earnings. The impact of SFAS 133 on CNBC's
financial statements will depend on a variety of factors, including future
interpretative guidance from the FASB, the extent of the company's hedging
activities, the types of hedging instruments used and the effectiveness of such
instruments. However, CNBC does not believe the effect of adopting SFAS 133 will
be material to its financial position.
Certain items in the financial statements have been reclassified to conform with
the current presentation.
NOTE 2 - LOANS
Loans were comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Residential Real Estate Loans.................. $ 24,778,595 $ 22,888,949
Real Estate Construction Loans................... 3,879,048 6,440,586
Real Estate Investment Loans..................... 92,553,762 75,806,467
Business Loans................................... 73,228,582 60,291,928
Personal Loans................................... 14,037,592 13,091,809
-------------- --------------
Subtotal......................... 208,477,579 178,519,739
Allowance for Loan Losses........................ (2,624,167) (2,550,000)
Net Deferred Fees and Costs...................... (370,587) (300,202)
-------------- --------------
Net Loans........................................ $ 205,482,825 $ 175,669,537
============== ==============
</TABLE>
9.
<PAGE> 10
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - LOANS (CONTINUED)
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning Balance ............ $ 2,752,028 $ 2,334,013 $ 2,550,000 2,055,000
Loan Loss Provision .......... 105,800 119,000 307,400 392,000
Loans Charged Off ............ (252,661) (43,279) (252,661) (43,279)
Recoveries on Loans Previously
Charged Off ............. 19,000 -- 19,428 6,013
----------- ----------- ----------- -----------
Ending Balance ............... $ 2,624,167 $ 2,409,734 $ 2,624,167 $ 2,409,734
=========== =========== =========== ===========
</TABLE>
Information regarding nonperforming and impaired loans was as follows:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Loans Past Due Over 90 Days
And Accruing Interest ......... $ -- $ --
Nonaccrual Loans ......................... 51,674 --
Impaired Loans with No Allowance
for Loan Losses Allocated ...... $ 62,687 $ --
Impaired Loans with Allowance
for Loan Losses Allocated ...... 374,431 558,000
-------- --------
Total .................................... $437,118 $558,000
======== ========
Amount of Allowance for Loan Losses
Allocated to Impaired Loan Balance ....... $ 80,000 $230,000
NOTE 3 - DEPOSITS
Total interest-bearing deposits were classified as follows:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Interest-bearing Demand................ $ 15,716,484 $ 9,216,329
Savings................................ 65,853,485 65,761,990
Time, Balances Under $100,000.......... 41,866,878 38,457,477
Time, Balances $100,000 and Over....... 50,360,388 33,205,820
--------------- --------------
Total Interest Bearing Deposits........ $ 173,797,235 $ 146,641,616
=============== ==============
10.
<PAGE> 11
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - DEPOSITS (CONTINUED)
Total deposit accounts with balances of $100,000 and over, including non
interest-bearing demand accounts, totaled $126,933,000 at September 30, 2000 and
$96,560,000 at December 31, 1999. Commerce National accepts time deposits from
customers outside its primary market area, which are primarily solicited through
a national rate-listing network. The total balances of these time deposits were
$47,706,000 at September 30, 2000 and $40,112,000 at December 31, 1999.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
At September 30, 2000 and December 31, 1999 respectively, reserves of $1,192,000
and $1,105,000 were required as deposits with the Federal Reserve or as cash on
hand. These reserves do not earn interest.
Some financial instruments, such as loan commitments, credit lines, letters of
credit and overdraft protection, are issued to meet customer-financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
A summary of the notional amounts of financial instruments with
off-balance-sheet risk were as follows:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Unadvanced Lines of Credit............... $ 34,098,000 $ 33,753,000
Unadvanced Draw Notes..................... 12,183,000 4,689,000
New Loan Commitments:
Secured by Real Estate........... 21,078,050 12,719,000
Other............................ 7,753,750 6,029,000
Letters of Credit......................... 3,113,000 1,939,000
Available Lines for Credit Cards.......... 1,809,000 1,537,000
Commitments to make fixed-rate loans at current market rates, and included above
were $1,129,000 at September 30, 2000, with rates ranging from 8.5% to 10.25%,
and $1,165,000 at December 31, 1999, with rates ranging from 8.0% to 9.0%. Also
included above at September 30, 2000 are $10,664,000 of one and five-year
adjustable rate loans with fixed starting rates ranging from 8.5% to 9.5%. At
December 31, 1999, there was $7,236,000 of five-year adjustable rate loans with
fixed starting rates ranging from 7.25% to 8.75%.
11.
<PAGE> 12
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - REGULATORY MATTERS
CNBC Bancorp and Commerce National are subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and, additionally for banks, prompt corrective action regulations,
involve quantitative measures of assets, liabilities and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts are also subject to qualitative judgments by regulators. Failure
to meet capital requirements can initiate regulatory action.
The prompt corrective action regulations provide five regulatory capital
classifications: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. These terms are
not intended to represent overall financial condition. CNBC and Commerce
National met the requirements of a well capitalized institution as defined above
at September 30, 2000 and December 31, 1999. If Commerce National's capital
classification were to change to adequately capitalized, it would need to obtain
regulatory approval to continue to accept brokered deposits.
Actual and required capital amounts and ratios are presented below.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 2000
Total Capital to Risk Weighted Assets
CNBC................................... $23.4 11.7% $16.0 8.0% $20.0 10.0%
Commerce National...................... $24.4 12.2% $15.9 8.0% $19.9 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
CNBC................................... $20.9 10.5% $8.0 4.0% $12.0 6.0%
Commerce National...................... $15.6 7.8% $8.0 4.0% $12.0 6.0%
Tier 1 (Core) Capital to Average Assets
CNBC................................... $20.9 8.9% $9.4 4.0% $11.8 5.0%
Commerce National...................... $15.6 6.7% $9.4 4.0% $11.7 5.0%
DECEMBER 31, 1999
Total Capital to Risk Weighted Assets
CNBC................................... $21.2 12.6% $13.4 8.0% $16.8 10.0%
Commerce National...................... $22.2 13.3% $13.4 8.0% $16.8 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
CNBC................................... $19.1 11.4% $6.7 4.0% $10.1 6.0%
Commerce National...................... $13.8 8.2% $6.7 4.0% $10.1 6.0%
Tier 1 (Core) Capital to Average Assets
CNBC................................... $19.1 9.1% $8.4 4.0% $10.5 5.0%
Commerce National...................... $13.8 6.6% $8.4 4.0% $10.5 5.0%
</TABLE>
12.
<PAGE> 13
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion focuses on the consolidated financial condition of CNBC
Bancorp ("CNBC") at September 30, 2000, compared to December 31, 1999, and the
consolidated results of operations for the three and nine months ended September
30, 2000 compared to the same periods in 1999. The purpose of this discussion is
to provide the reader with a more thorough understanding of the consolidated
financial statements. This discussion should be read in conjunction with the
interim consolidated financial statements and related footnotes.
When used in this Form 10-QSB or future filings by CNBC with the Securities and
Exchange Commission, in CNBC's press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. CNBC wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made, and to advise readers that
various factors, including regional and national economic conditions, changes in
levels of market interest rates, credit risks of lending activities and
competitive and regulatory factors, could affect CNBC's financial performance
and could cause CNBC's actual results for future periods to differ materially
from those anticipated or projected. CNBC does not undertake, and specifically
disclaims, any obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
CNBC is not aware of any trends, events or uncertainties that will have or are
reasonably likely to have a material effect on the liquidity, capital resources
or operations except as discussed herein. In addition, CNBC is not aware of any
current recommendations by regulatory authorities that would have such effect if
implemented.
FINANCIAL CONDITION
Total assets increased $41.0 million, or 20.2%, to $243.9 million at September
30, 2000. The two largest components of this increase were an increase in cash
and cash equivalents of $13.0 million and an increase of $29.8 million in net
loans outstanding.
The increase in cash and cash equivalents at September 30, 2000, was due to
increased liquidity from strong deposit growth. The cash and cash equivalents
balance at September 30, 2000 is consistent with historical levels as management
has maintained approximately 10% of total assets in cash and cash equivalents to
provide adequate liquidity for fluctuations in business customers' lines of
credit and demand deposit accounts.
The increase in loans was comprised primarily of a $16.7 million increase in
real estate investment loans and a $12.9 million increase in business loans.
Average loans outstanding for the nine months ended September 30, 2000 were
$190.6 million versus $163.2 million for 1999, an increase of 16.8%. The
percentage increase in average loans outstanding was less than that experienced
during the same period last year. Management attributes a slowing of growth to
increased competition and a conscious strategy to sell portions of investment
real estate loans to other banks to control its asset/liability rate sensitivity
and funding needs. The central Ohio economy continues to be strong, especially
in residential and commercial real estate construction. Management believes
opportunities are good for continued growth
13.
<PAGE> 14
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION - CONTINUED
due to Commerce National's small business focus and personal service, a strong
local economy, and continuing consolidation of its competitors.
The primary funding source for the asset growth was a $34.4 million increase in
deposit accounts. Of this increase, $7.2 million was in noninterest-bearing
demand account balances. Average deposits for the first nine months of 2000 were
$186.6 million compared to $164.6 million for 1999, an increase of 13.3%. Demand
and savings deposit balances continued to grow as a result of Commerce
National's small business focus and available cash management products for its
customers. Certificates of deposit grew $20.6 million, with $7.6 million of
growth achieved through solicitation of deposits on the national rate-listing
network to which Commerce National subscribes. Maturities for new certificates
generally range from 18 months to 3 years.
Borrowings increased $4.8 million, with an increase in Federal Home Loan Bank
advances. These advances have 3 and 5 year fixed rates that may convert to a
variable rate depending on market conditions and ten-year terms. At September
30, 2000, there was also $2.1 million outstanding on a cash management line with
the Federal Home Loan Bank.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Net income for the nine-month period ended September 30, 2000 was $2,209,825, a
29.5% increase, compared to $1,707,076 during the same period in 1999. The
increase in earnings was due to improved net interest income from an increase in
loan balances, offset somewhat by increased noninterest expense.
NET INTEREST INCOME
Net interest income is the largest component of CNBC's income and is affected by
the interest rate environment and the volume and composition of interest-earning
assets and interest-bearing liabilities. Net interest income increased by
$955,979 for the nine-month period ended September 30, 2000, compared to the
same period in 1999. The 16.1% increase in net interest income was primarily the
result of an increase in average loans outstanding of 16.8% for 2000 compared to
1999. In addition to strong loan growth, CNBC had a slightly higher percentage
of its assets invested in loans, which earn higher rates of interest than
investments, in 2000 as compared to 1999. Loan growth was most significant in
the business and real estate investment loan categories, which reflects Commerce
National's business focus and an expanding local economy. Total interest income
during the nine-month period ended September 30, 2000 increased 22.9% over the
prior year nine-month period, compared to a 30.9% increase in total interest
expense. The net interest margin for the nine months ended September 30, 2000
was 4.33%, compared to 4.27% for the same period in 1999.
PROVISION FOR LOAN LOSSES
The decrease in the provision for loan losses of $84,600 for the nine months
ended September 30, 2000 over the same period in the prior year was due to the
overall slower average growth in the loan portfolio. Trends in nonperforming and
impaired loans have been increasing slightly from prior years, however they are
still considered very low.
14.
<PAGE> 15
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NONINTEREST INCOME
Noninterest income for the nine months ended September 30, 2000 increased
$123,733, representing a 49.0% increase over the same period in the prior year.
This increase was a result of increased credit card and merchant processing
fees, letter of credit fees and fee income from CNBC Retirement Services, Inc.
("CRS, Inc."). Effective June 1, 2000, CNBC acquired The Puppel Companies,
(renamed CNBC Retirement Services, Inc.,) which is a wholly-owned subsidiary of
CNBC. New services provided by CRS, Inc. include investment, administration and
accounting services to business retirement plans. Fee income from CRS, Inc.
represented less than 1% of CNBC's total revenue for the nine months ended
September 30, 2000. Other income for the nine months ended September 30, 1999
included a $15,000 gain on the sale of securities classified as available for
sale.
NONINTEREST EXPENSE
Noninterest expense was up $428,484, or 13.5% for the nine months ended
September 30, 2000 versus the nine months ended September 30, 1999. Increases in
salaries and benefits accounted for 104.0% of the increase. In addition to
normal raises and staff additions to support CNBC's growth, three changes were
implemented which increased this category of expense but reduced expense in
other categories. The first change involved the courier messenger service
utilized by Commerce National's customers. Since its inception, selected
Commerce National customers have utilized a deposit pickup service which was
paid for by Commerce National. A separate courier company previously provided
this service. In July 1999, Commerce National received regulatory approval to
establish a mobile messenger service that would utilize bank employees instead
of contracting with a separate company. Effective in July 1999, the courier
company was acquired by Commerce National and all employees and independent
drivers were hired by Commerce National as employees. This change effectively
reclassified this expense from "Customer Courier" to "Salaries and Benefits" and
"Other Expenses". The second change was the conversion of Commerce National's
data processing and proof operations area from a third party processor to
in-house effective in April and August 1999. This change effectively
reclassified a portion of its data processing expense to "Salaries and
Benefits". Additionally, the acquisition of CRS, Inc. in June 2000 added three
additional full-time employees and one part-time employee. Effective October 20,
2000, Mr. Huddle, Principal and Senior Lending Officer, resigned his position
with Commerce National Bank. During October 2000, Mr. Mahoney, Vice President
and Senior Lending Officer, also tendered his resignation to be effective prior
to December 31, 2000. Other loan officers at the bank will assume the client
services responsibilities of Mr. Huddle and Mr. Mahoney. Mr. McAuliffe and Ms.
Miller will assume their supervisory duties until management determines what
staffing additions, if any, are necessary.
Occupancy expense increased due to a significant drop in rental income received
on the office building owned by Commerce National Bank. Two tenants occupying
approximately 40% of the building moved in early 1999. This change was necessary
to allow room for expansion to meet Commerce National's needs for facilities.
Commerce National utilized 2,500 square feet of the vacated space for its proof
and data processing areas and completed renovation of 8,000 square feet for its
lending officers and loan operations departments. CRS, Inc. also occupies
approximately 1,200 square feet. CNBC now occupies approximately 80% of its
office building.
15.
<PAGE> 16
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NONINTEREST EXPENSE - CONTINUED
Data processing expenses decreased 52.8% for the nine months ended September 30,
2000. During the second quarter 1999, a conversion was completed of the check
processing system, bringing the system in-house from a third-party processor.
During the third quarter of 1999, Commerce National terminated its contract with
the third party processor of its core operating system and began processing
in-house, utilizing its own AS/400 computer. A portion of the cost savings was
offset by increased personnel expense.
As previously stated, the outside courier service was converted to utilize bank
employees which eliminated customer courier expense in 2000. State franchise
taxes are higher due to higher taxes incurred in 2000 due to the $5 million
capital raised in 1999 and receipt of prior year refunds in the third quarter of
1999 which reduced expense in that quarter. The increase in other operating
expenses of 14.0% primarily reflects the growth of Commerce National.
Federal income tax expense was up $233,079, or 25.4% for the nine months ended
September 30, 2000 versus the nine months ended September 30, 1999. The increase
in federal income tax expense was the result of CNBC's increased profitability.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1999
Third quarter income in 2000 was $798,857, a 24.9% increase over the $639,428
for the same period in 1999. The increase in earnings was due to improved net
interest income offset somewhat by increased noninterest expense.
NET INTEREST INCOME
Interest income for the third quarter 2000 was $4,920,819, an increase of 26.5%
over the same period in 1999. Interest expense for the third quarter 2000 was
$2,519,698, an increase of 41.0% over the same period in 1999. The 14.2%
increase in net interest income was primarily the result of an increase in
average loans outstanding.
NONINTEREST INCOME
Noninterest income for the three months ended September 30, 2000 increased
$78,240, a 91.4% increase over the same period in the prior year. This increase
was a result of increased credit card and merchant processing fees, letter of
credit fees and CRS Inc. fee income. Effective June 1, 2000, CNBC acquired The
Puppel Companies, renamed CNBC Retirement Services, Inc., a wholly-owned
subsidiary of CNBC. This fee income accounted for approximately 95.3% of the
increase in other income for the quarter.
NONINTEREST EXPENSE
Noninterest expense was up $172,746, or 15.9% for the three months ended
September 30, 2000 versus the three months ended September 30, 1999. Increases
in salaries and benefits accounted for 76.2% of the increase. In addition to
normal raises and staff additions to support CNBC's growth, two changes were
implemented which increased this category of expense. The first change was the
conversion of
16.
<PAGE> 17
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NONINTEREST EXPENSE - CONTINUED
Commerce National's data processing area from a third party processor to
in-house effective in August 1999. This change effectively reclassified a
portion of its data processing expense to "Salaries and Benefits". The second
change was the acquisition of CRS, Inc., which added three additional full-time
employees and one part-time employee.
Data processing expenses decreased 60.2% for the three months ended September
30, 2000. During the third quarter of 1999, Commerce National terminated its
contract with the third party processor of its core operating system and began
processing in-house, utilizing its own AS/400 computer. Third quarter 1999
balances included both a termination fee and conversion fees.
Professional services increased 89.1% for the three months ended September 30,
2000. This increase is largely a result of consulting fees related to testing of
Commerce National's computer network system. State franchise tax expense
increased $26,211 due to a refund received in July 1999, which offset expense
and higher taxes paid in 2000 due to higher capital levels resulting from the
stock offering completed in 1999.
Federal income tax expense was up $58,449 or 17.0% for the three months ended
September 30, 2000 versus the three months ended September 30, 1999. The
increase in federal income tax expense was the result of CNBC's increased
profitability.
LIQUIDITY
CNBC's objective in managing liquidity is to maintain the ability to meet the
cash flow needs of its customers, such as new loans or deposit withdrawals, as
well as its own financial commitments. The principal sources of liquidity are
new deposit accounts, loan principal payments, money market mutual funds,
securities available for sale, federal funds sold and cash and deposits with
banks. Along with its liquid assets, CNBC has additional sources of liquidity
available to ensure that adequate funds are available as needed. These sources
include, but are not limited to, the sale of loan participations to other
financial institutions, the purchase of federal funds and borrowing from the
Federal Home Loan Bank or Federal Reserve Bank. Management believes that it has
the capital adequacy, profitability and reputation to meet its current and
foreseeable liquidity needs.
At September 30, 2000, Commerce National had $43.5 million in available
short-term funding sources to mitigate risks from changes in deposit account
balances or other liquidity needs. Cash and short-term investments do not
include balances due from the Federal Reserve Bank. These sources are detailed
as follows:
Cash and short-term investments $ 11,686,000
Unused borrowing capacity with the Federal Home Loan Bank 23,889,000
Federal funds lines of credit with other banks 5,900,000
Unpledged investment securities 2,045,000
------------
Total $ 43,520,000
============
Commerce National also has collateral pledged to the Federal Reserve Bank that
would allow borrowings at the discount window of $49,761,000. No borrowings with
the Federal Reserve were outstanding at September 30, 2000.
17.
<PAGE> 18
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES
CNBC and Commerce National are both subject to regulatory capital requirements.
These requirements measure capital levels utilizing three different
calculations. Based on these calculations, CNBC and Commerce National are
assigned to a capital category which, among other things, dictates certain
business practices of the organization, the level of Commerce National's FDIC
insurance premiums and which process is followed in obtaining regulatory
approvals necessary for branch applications, mergers and similar transactions.
CNBC's capital requirements are measured on a combined basis with Commerce
National and CRS, Inc., using consolidated totals. Commerce National is measured
independently. In April 1999, CNBC raised $4.85 million in new capital funds
through a public offering to support its recent growth and improve its capital
position. This public offering was completed in less than one month without
assistance of a broker. As of December 31, 1999, CNBC and Commerce National were
classified in the "well capitalized" category. It is management's policy to
manage the growth of Commerce National and provide for the appropriate capital
resources that will result in Commerce National maintaining its classification
as a "well capitalized" institution. Similarly, it is management's policy to
maintain the classification of CNBC as either "adequately capitalized" or "well
capitalized." For further information on capital requirements, including actual
ratios, see Note 5 to the CNBC Bancorp Consolidated Financial Statements
included in this report.
CNBC approved the purchase of up to 30,000 shares of its common stock over the
next year to be used for general corporate purposes. The shares will be
purchased from time to time in the open market or through private transactions
at market price. CNBC purchased 2,000 shares in the third quarter of 2000. CNBC
has purchased and re-issued a total of 10,000 shares in conjunction with the
exercise of stock options and warrants during 2000.
18.
<PAGE> 19
CNBC BANCORP
FORM 10-QSB
Quarter ended September 30, 2000
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
Item 1 - LEGAL PROCEEDINGS:
There are no matters required to be reported under this item.
Item 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS:
There are no matters required to be reported under this item.
Item 3 - DEFAULTS UPON SENIOR SECURITIES:
There are no matters required to be reported under this item.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: THERE
are no matters required to be reported under this item.
Item 5 - OTHER INFORMATION:
There are no matters required to be reported under this item.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a)(1) Exhibit 3.1 - Articles of Incorporation of CNBC
Bancorp. Reference is made to Exhibit 3.1 to the
Registration Statement on Form SB-2, File No.
333-68797, filed March 12, 1999, which exhibit is
incorporated herein by reference
(2) Exhibit 3.2 - Regulation of CNBC Bancorp. Reference
is made to Exhibit 3.2 to the Registration Statement
on Form SB-2, File No. 333-68797, filed March 12,
1999, which exhibit is incorporated herein by
reference
(3) Exhibit 10.1 - Employment Agreement dated as of March
1, 1998 as amended and restated effective December
31, 1998 by and between and among Commerce National
Bank, CNBC Bancorp and Thomas D. McAuliffe. Reference
is made to Exhibit 10.1 to Form 10-QSB dated June 30,
1999
(4) Exhibit 10.2 - Form of Indemnification Agreement
between CNBC Bancorp and its directors, officers and
certain representatives. Reference is made to Exhibit
10.2 to the Registration Statement on Form SB-2, File
No. 333-68797, filed March 12, 1999, which exhibit is
incorporated herein by reference
(5) Exhibit 10.3 -Non-Qualified Stock Option Plan.
Reference is made to Exhibit 10.3 to the Registration
Statement on Form SB-2, File No. 333-68797, filed
March 12, 1999, which exhibit is incorporated herein
by reference
(6) Exhibit 10.4 -Form of Deferred Compensation
Agreement. Reference is made to Exhibit 10.4 to the
Registration Statement on Form SB-2, File No.
333-68797, filed March 12, 1999, which exhibit is
incorporated herein by reference
(7) Exhibit 10.5 - CNBC Bancorp 1999 Stock Option Plan.
Reference is made to Exhibit 10.5 to Form 10-QSB
dated June 30, 1999
(8) Exhibit 10.6 - Employment Agreement dated as of June
1, 2000, by and between and among Commerce National
Bank, CNBC Bancorp and John A. Romelfanger
(9) Exhibit 10.7 - Employment Agreement dated as of June
1, 2000, by and between and among CNBC Retirement
Services, Inc., CNBC Bancorp and Dennis D. Puppel
(10) Exhibit 27 - Financial Data Schedule
19.
<PAGE> 20
CNBC BANCORP
FORM 10-QSB
Quarter ended September 30, 2000
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
(b) No current reports on Form 8-K were filed by the small
business issuer during the quarter ended September 30,
2000.
20.
<PAGE> 21
CNBC BANCORP
SIGNATURES
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CNBC BANCORP
------------
(Registrant)
Date: November 13, 2000 /s/ Thomas D. McAuliffe
----------------------------- -----------------------
(Signature)
Thomas D. McAuliffe
Chairman and President
Date: November 13, 2000 /s/ John Romelfanger
----------------------------- --------------------
(Signature)
John Romelfanger
Treasurer
--------------------------------------------------------------------------------
21.
<PAGE> 22
CNBC BANCORP
Index to Exhibits
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
-------------- ----------- -----------
<S> <C> <C>
3.1 Articles of Incorporation of CNBC Bancorp Reference is made to Exhibit
3.1 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which
exhibit is incorporated herein by
reference
3.2 Regulation of CNBC Bancorp Reference is made to Exhibit
3.2 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which
exhibit is incorporated herein by
reference
10.1 Employment Agreement dated as of March 1, 1998 Reference is made to Exhibit 10.1 to
as amended and restated effective December 31, 1998 Form 10-QSB dated June 30, 1999
by and between and among Commerce National Bank,
CNBC Bancorp and Thomas D. McAuliffe
10.2 Form of Indemnification Agreement between CNBC Reference is made to Exhibit
Bancorp and its directors, officers and certain 10.2 to the Registration Statement
representatives on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
10.3 Non-Qualified Stock Option Plan Reference is made to Exhibit
10.3 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
10.4 Form of Deferred Compensation Agreement Reference is made to Exhibit
10.4 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
10.5 CNBC Bancorp 1999 Stock Option Plan Reference is made to Exhibit 10.5 to
Form 10-QSB dated June 30, 1999
10.6 Employment Agreement dated as of June 1, 2000
by and between and among Commerce National Bank,
CNBC Bancorp and John A. Romelfanger
10.7 Employment Agreement dated as of June 1, 2000
by and between and among CNBC Retirement Services,
Inc., CNBC Bancorp and Dennis D. Puppel
27 Financial Data Schedule
</TABLE>
--------------------------------------------------------------------------------
22.
